Ormat Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Amounts are in U.S. dollars unless stated otherwise. Ormat operates Electricity, Product, and Energy Storage businesses, with an approximately 1.1 GW generating portfolio.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $175.9M | $158.8M | $528.7M | $472.1M |
| Gross profit / margin | $61.1M / 34.7% | $63.1M / 39.8% | $188.6M / 35.7% | $188.8M / 40.0% |
| Operating income | $38.9M | $36.0M | $122.6M | $114.5M |
| Net income attributable to Ormat stockholders | $18.1M | $14.9M | $47.8M | $43.2M |
| Diluted EPS | $0.32 | $0.26 | $0.85 | $0.77 |
| Adjusted EBITDA | $102.2M | $101.6M | $310.8M | $285.4M |
- Q3 revenue rose 10.7%; nine-month revenue rose 12.0%. Electricity remained the largest business, contributing 86.9% of Q3 revenue.
- Q3 gross profit declined despite higher revenue, as total cost of revenues increased 19.9%. Gross margin fell 5.1 percentage points year over year; nine-month gross margin fell 4.3 points.
- Q3 Electricity revenue grew 7.1%, Product 35.1%, and Energy Storage 56.2%. Nine-month Energy Storage revenue declined 4.6%, partly reflecting unusually strong Rabbit Hill revenue during the February 2021 Texas power crisis.
- Cash provided by operations for the first nine months was $206.2M, versus $144.8M. Capital expenditures were $408.4M, versus $288.4M; operating cash flow less capital expenditures was approximately negative $202.1M.
- Cash and cash equivalents were $154.6M at September 30, 2022, plus $98.4M of restricted cash. Unused capacity under committed credit lines was $387.4M. Current assets were $475.0M and current liabilities $372.0M.
Financial position and material changes
- Total assets were $4.52B and total liabilities $2.52B. Reported debt balances included approximately $1.77B of long-term and current debt, including $431.3M principal of convertible notes; the separate Dixie Valley financing liability was $242.0M.
- In June, Ormat issued $431.25M of 2.5% convertible senior notes due 2027, receiving net proceeds of approximately $419.7M. Proceeds funded a $221.9M prepayment of Series 3 Bonds, $24.5M of capped calls, a $18.0M share repurchase, and general corporate purposes. Notes have an initial conversion price of about $90.27 per share; capped calls have an initial cap price of $107.63.
- Ormat also borrowed $75M under an eight-year Mizrahi Bank loan at a fixed 4.1%. It repaid $135.7M of long-term debt during the nine-month period. The company reported compliance with applicable financial covenants; its net-debt-to-adjusted-EBITDA ratio was 4.12 and equity-to-assets ratio was 44.0%.
- Investing cash outflow was $369.6M, compared with $509.9M in 2021, which included the $171.0M Terra-Gen acquisition. Financing cash inflow was $73.6M, versus $185.0M in 2021. Cash and restricted cash decreased by $90.4M over the nine months.
- The board declared a quarterly dividend of $0.12 per share, payable November 30, 2022.
Management commentary, outlook, and risks
- Management estimated approximately $160M of capital needs for the remainder of 2022, including project construction, exploration, and maintenance. It expected to fund requirements from available liquidity, operating cash flow, and project financing/refinancing.
- Growth projects include the 25 MW North Valley geothermal plant, expected to begin commercial operation in Q1 2023; Heber complex repowering; and multiple battery storage projects. The company reported a Product backlog of $137.1M as of November 3, 2022, compared with $66.9M a year earlier. No consolidated full-year earnings or revenue guidance is provided in the supplied filing text.
- The 40 MW Heber 1 plant remained impaired by a February fire and was operating at approximately 20 MW after partial restart. Management estimated the outage reduced monthly revenue by about $1.5M; it recognized $7.4M of business-interruption recoveries in 2022 and expected property-damage insurance to cover the equipment loss. Repowering of Heber 1 was expected in the first half of 2023.
- Dixie Meadows construction was temporarily paused during consultation following the Dixie Valley toad’s emergency endangered-species listing. The project had a net book value of approximately $83M. Delays or mitigation requirements could increase costs, defer revenue, or affect the project PPA; the ultimate outcome and potential loss could not be estimated.
- Management cited supply-chain constraints, higher raw-material and transportation costs, inflation, and sharply higher interest rates as risks to margins, project costs, and future borrowing. Most long-term debt was fixed-rate (98.6%), but refinancing or additional borrowing could be more expensive.
- Customer and collection exposure is material: SCPPA, NV Energy utilities, and Kenya Power together represented substantial shares of revenue. At September 30, $20.6M was overdue from Kenya Power (of which $2.7M was paid in October) and $15.6M from Honduras utility ENEE, with none of the latter paid to date. Management believed collection was likely, but further delays were possible.
- Ormat’s share of Sarulla consortium results turned to a loss; Sarulla’s recovery plan remains uncertain, and the consortium projected it might fail its minimum debt-service coverage requirement in the March 2023 calculation period.
- The filing describes pending legal and regulatory matters, including litigation and consultation concerning Dixie Meadows. A special board committee was also investigating anti-corruption allegations raised in a short-seller report; Ormat was providing information requested by the SEC and DOJ. The filing does not quantify a potential loss for these matters.
- Management viewed the Inflation Reduction Act as favorable to the sector, while continuing to assess its effects. The company stated that disclosure controls were effective and that no material Q3 change in internal control over financial reporting occurred.
Important facts for investors to verify
- Whether Heber 1 restoration, insurance collections, and the planned repowering proceed on the expected timetable and economics.
- Progress on Dixie Meadows permitting and species consultation, including potential effects on the $83M investment, costs, schedule, and PPA.
- Product backlog conversion, project margins, and storage-project completion amid supply-chain and cost pressures.
- Collection of overdue Kenya and Honduras receivables and the financial condition and recovery prospects of the Sarulla consortium.
- Debt service, covenant headroom, liquidity, and the potential cash or dilution impact of the 2027 convertible notes and capped calls.
- Developments in the SEC/DOJ information requests and other disclosed legal proceedings, as well as the implementation and financial effects of the Inflation Reduction Act.